Building a truly customer centric bank Ross McEwan, Chief Executive Morgan Stanley Financial Services Conference – London 25 th March 2014
Agenda 1 Strategy outline 2 Building capital strength 3 Driving sustainable returns 4 Growing our franchises 5 Our Investment Case 2
First priorities – recap � Establish RBS Capital Resolution (Internal Bad Bank), Citizens IPO announced � Articulate capital plan � Reset relationship with HMT, PRA, UKFI and the Chancellor � Set out clear direction on what we want to be � Resolve the Dividend Access Share – underway 3
Our vision for a bank that earns your trust Be reliable, consistent and simple to do business with Earn our customers' trust and win more of their business Generate reliable returns, positive organic cash flow and pay an ordinary dividend Our ambition: to be number one for customer service, trust and advocacy in each of our business areas by 2020 4
We must invest in our customer franchises We have market leading franchises… …but they are vulnerable if we don’t act � #2 UK Retail current accounts � Customers’ expectations are rising and their needs are rapidly evolving � #1 UK Small Business Banking � � #1 UK Wealth Management We make it too complicated for our customers to do business with us � #1 UK Mid Corporates � Questions remain around our technology � #1 UK Large Corporates, #4 in Europe � Our reputation has been damaged by � #1 UK Cash Management, #4 in Europe misconduct � Best Trade Finance Bank in UK and � Our market share trend is flat in most Western Europe franchises and declining in some � Focused international platform including strong US and Asian distribution networks � Strong capabilities in FX, DCM, Rates - Top 3 in UK, Top 10 in EMEA � #1 Northern Ireland � #3 Republic of Ireland 5
We must reduce cost and complexity further We have made great progress in …but our cost base and organisational downsizing and risk reduction… model still reflect our past ambition -54% -18% 16 ~1,600 13 740 TPAs, £bn Costs, £bn 2007 2013 2008 2013 Loan : deposit ratio 94% Siloed organisation � � Short-term wholesale funding £32bn Inefficient and inconsistent support and � � control functions Liquidity Coverage Ratio 102% � Multiplicity of technology platforms Net Stable Funding Ratio 122% � � Fragmented processes � 6
We must generate lower risk, strong and sustainable earnings We have been pro-active in refocusing on …but most of our businesses continue to where we have a competitive advantage… generate sub-par returns RBS FY 2013 Core Return on Equity by division excluding RCR impact, % We made significant progress in � rationalising our geographic footprint: 26 UK Retail - Exited 26 countries 1 - Target client universe from 26,000 to 4,000 2 11 UK Corporate We have exited a number of businesses and � 12 Wealth products: - Commodities Trading – Sempra International 5 Banking - WorldPay - DLG 5 Markets - Asian, EME and LatAm Retail Ulster Bank (12) - Aviation Capital - Wealth in Africa, LatAm & Caribbean US R&C 7 - Project Finance 3 , Asset Management, Structured Asset Finance, Non-Conforming 7 Core ABS, Equities, ECM, Corporate Broking, M&A Advisory 1 Markets. 2 Markets and International Banking target client universe. 3 Within GBM. 7
Our strategy: UK focused Retail & Commercial bank With Markets and international capabilities to meet our clients’ needs, primarily focusing to support their UK and Western European operations Business mix shift towards the UK… …with emphasis on Retail & Commercial Non-UK UK Wholesale 2 R&C Illustrative split by total income Illustrative split by RWAs ~15% ~20% ~20% ~40% ~50% ~60% ~85% ~80% ~80% ~60% ~50% ~40% Steady state 1 2008 Current Steady state 1 2008 Current UK banking market is among the most attractive globally: 5 th highest income, 5 th � largest profit pool Focus on Retail & Commercial will result in a significantly lower risk profile and � higher returns 1 Steady state defined as 2018 to 2020. 2 Wholesale defined as GBM in 2008 and Markets for current and steady state 8
Organised to best serve our customers’ needs � From 7 Divisions to 3 businesses, each serving specific segments of customers with similar needs � Rebalancing from c.70% of our people in “back office” support and control roles to a majority in customer-facing roles, with remuneration of all staff linked to customer service Personal & Business Commercial & Private Corporate & Institutional Banking Banking Banking UK Large Int’l Large Financial UK UK UK Small UK High Net UK Mass Retail Affluent Business Corporate Corporate Institutions Mid Worth Commercial Corporate Ulster Markets Steady state 1 business profile Steady state 1 business profile Steady state 1 business profile RoE 3 RoE 3 RoE 3 RWA Op. Profit RWA Op. Profit RWA Op. Profit 20% 30% 30% ~10% 2 35% 35% 15+% 15+% 50% Steady state defined as 2018 to 2020. 2 7-8% medium-term target (2016/17). 3 Divisional return on equity target is based on 12% divisional RWAs, adjusted for capital deductions (expected 1 loss, securitisations and pension deficit). 9
We will remove duplication and complexity Functions siloed & duplicated across divisions Current proposition: very complex and duplicative Divisions 109 Credit card propositions Business Group Services Centre Intl. UK Retail Wealth UK Corp. Markets Non-Core Ulster Banking Branch/ & Bus. & Comms & ABS& Comms & Comms & Pri. Coutts Int’l Com CAO Finance Corp. Credit marketing marketing Banking Banking Affairs Customer C&I Corporate Corporate Corporate Coutts UK APAC HR Finance Exp. Banking Advisory Banking Services Manual payments 7.8m Direct Cust. Corp. Finance HR Legal Finance Finance HR Dist’n Solutions DCM/ Risk processed annually NC IB Group Finance Legal Finance Finance Markets & GRG Risk Americas Ops. Solutions Future Financial Private Bank HR Inst. IB APAC Ops. HR HR Office strat/dev. Group Rainbow Private Global Portfolio HR Ops. IB EMEA Ops. Programm Finance duplicated Banking Sales Banking e 1,133 Prod., Live websites Products Global IB Retail across Divisions, Serv. & Risk Solutions Risk & Mkt’ing Americas Logistics Banking Mkt’ng Business Services Retail Strat. & Banking Risk Strategy HR Legal Risk Risk Architectur and at Group Centre Ops. e Tech. Risk Logistics Finance Services 5 Mortgage platforms Efficient and effective functions across franchises Personal and Corporate and Commercial and Days to produce a Business Institutional Private Banking 17 Banking Banking mortgage offer Operations Ops Ops Ops Ops Ops Ops Group property Apps Apps Apps Apps Apps Apps Group IT infrastructure and applications Different retail Finance 36 HR savings products Risk Compliance Strategy, Marketing & Comms 10
Agenda 1 Strategy outline 2 Building capital strength 3 Driving sustainable returns 4 Growing our franchises 5 Our Investment Case 11
1 CT1 ratio of 12+% by the end of 2016 FLB3 CT1 ratio, % Key drivers Potential uses of capital � Citizens divestment � Business and loan growth � RCR capital release � Buffer for potential future dividends ≥ 12% � Earnings � Volatile items e.g. conduct and litigation costs � Williams & Glyn divestment � De-risking and divestments 8.6% RWAs down ~30% 429 ~300 2013 2016 target Strong underlying capital generation in 2013 – 1.8% FLB3 CT1 build pre-exceptional items � Citizens IPO and RCR run-down – key capital build drivers; good progress being made � Citizens – plan to exit the business fully by the end of 2016 � Williams & Glyn – expect to sell a majority stake by the end of 2016 � Target. 1 12
Agenda 1 Strategy outline 2 Building capital strength 3 Driving sustainable returns 4 Growing our franchises 5 Our Investment Case 13
Balance sheet rationalisation nearing successful conclusion Funded assets and Total income, £bn 1,563 >£800bn balance sheet reduction Further rationalisation 740 ~600 � Citizens divestment: £75bn � Williams & Glyn divestment: £20bn Growth in go- � RCR run-down: £29bn forward bank � Reduced C&I: ~£65bn Total 30 19.4 ~(5)-(6) ~1 ~15 income: Highest 2013 Medium- point 2 term 1 Journey to a UK focused bank with strong international capabilities 1 Medium term defined as 2016/17. 2 FY 2007 total income including ABN AMRO from date of acquisition; statutory funded assets at 31 December 2007. 14
Now we must focus on driving sustainable returns Return on Tangible Equity, % ~9-11% 2 ~1.0% ~4.0% ~3.0% ~2.5% 1 1 2 3 2013 underlying RCR run-down Cost reduction Lower Medium- RoTE impairments term target 3 � RCR run-down � ~£2bn medium-term � Significant reduction complete cost reductions 4 in Ulster � 2013 includes ~£2bn � UK Corporate of Non-Core losses returning to cycle average Normalised Group Return on Tangible Equity – Operating Profit ex. RCR less bank levy, EU resolution fund, amortisation of intangibles; taxed at 25% less preference dividends. 2 Tangible equity 1 based on CT1 ratio of 12%. 3 Medium term defined as 2016/17. 4 Ongoing cost reductions excluding disposals and run-off. 15
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